AT the close of its mission to Bulgaria, the International Monetary Fund managed to reach agreement with the Government on Budget 2004, IMF mission leader Gerald Schiff said at a joint news conference with the Cabinet.

The IMF and the Government both made compromises.

Finance Minister Milen Velchev officially announced that agreement was reached on a balanced budget this year and a budget deficit of 0.7 per cent of GDP for 2004. The zero gap this year - the first ever in the country, according to sources from the Finance Ministry - will be secured with 260 million leva of the surplus which will be put aside for the purpose.

Revenue over-performance is expected to be 400 to 500 million leva. What remains of it after completing the zero balance of this years budget will be used for revision of the National Health Insurance Fund's budget (50 million leva), for Christmas bonus salaries and pensions (112 million leva) and for the municipalities (155 million leva), as promised. The difference will be financed with the saved interest and capital expenditures, Velchev said.

The fiscal reserve next year should be at least 2.5 billion leva, Deputy Finance Minister Krasimir Katev said.

This week the parliamentary budget and finance committee approved the Budget Act on first reading. According to it, every year the minimum amount of the fiscal reserve shall be the bigger of the two values: the principal and interest payments due for the respective year or 85 per cent of the average annual figure of the payments due in the following three years.

According to Katev, debt payments in 2004 amount to 990 million euro, so the fiscal reserve should be 2.15 billion leva. Since peak payments are due in 2007, the minimum reserve for 2005 should be 2.5 billion leva, which is 85 per cent of the payments for the next three years. The Finance Ministry suggests a 2.5 million leva minimum for 2004 as a precaution, Katev said.

During the IMF mission to Bulgaria, a package of four measures for reducing the risk of increased bank lending was agreed on with the Bulgarian National Bank (BNB).

The BNB has pledged to conduct a case-by-case discussion of the credit strategies of all banks and to tighten audits, banking supervision and portfolio check-ups. The credit register will also be expanded to include all credits, not only loans exceeding 10 000 leva. The last measure concerns further polishing of the regulation documents on the classification of risk exposures with the best world practices in asset classification.

However, at a meeting with Prime Minister Simeon Saxe-Coburg, Schiff denied previous allegations by the media that the Fund had recommended measures for slowing down bank credit growth. Schiff said that the bank system is in good shape and the central bank has taken adequate measures to improve the supervision on the quality of bank credits.

"There is a slight slowdown in loan extending over the last three months the trend is expected to last" Schiff said.

BNB statistics confirmed this. According to it, the peak in loans was registered in June this year when credits rose by 113.2 million leva month-on-month and in September registered 80.2 million leva.

The IMF mission completed its two-week review in Bulgaria with positive messages saying that the 240 million stand-by credit would be successfully closed. The current standby credit with the IMF expires in February next year and the Government will most likely sign a follow-up agreement for a period of two years. The mission has discussed with the Government parameters of the new agreement but no details have been disclosed so far. The results of the fourth official review of the stand-by arrangement with Bulgaria will be discussed by the IMF board at a session in February 2004. The negotiations on the new agreement will begin early next year.